MPs question plan to tax child benefit

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The Independent Online
DOUBTS OVER Gordon Brown's plans to tax child benefit for the well-off were raised by an all-party committee of MPs yesterday. The Labour- dominated Social Security Select Committee predicted that unmarried couples living together would manage to avoid paying tax on their child benefit. The MPs also urged the Chancellor to ensure that his proposal did not breach the principle of independent taxation for men and women. They said he should also avoid propelling people currently paying the basic rate of tax into the 40 per cent top-rate bracket by including child benefit payments in their total income.

Mr Brown wants to tax the child benefit paid to the 855,000 families in which one partner pays the higher rate of income tax, which would raise pounds 450m a year - enough to raise the benefit by 70 pence per child each week.

But Treasury officials have warned him that there are practical problems in producing a workable scheme, which may force Mr Brown to delay imposing the tax for one or two years. He will reveal his intentions in his Budget next Tuesday, when he is expected to announce a generous rise in child benefit, already due to rise from pounds 11.45 to pounds 14.40 a week for the first child in April.

In a report rushed out before the Budget, the Social Security Committee stopped short of demanding that Mr Brown abandon his plan after Labour MPs watered down the draft report written by Archy Kirkwood, the Liberal Democrat MP for Roxburgh and Ber-wickshire, who chairs the committee.

Mr Kirkwood said the proposal would be illogical, unfair, complex and would not raise enough cash to raise child benefit substantially across the board. His draft report said the move could threaten independent taxation, under which the tax paid by one person is not affected by the income of any other person in their family.

But Labour MPs endorsed some of Mr Kirkwood's criticisms, with the committee expressing concern that people would not declare they received child benefit on their tax return.

"There is a risk that unmarried couples will find it easy to evade the tax if they choose not to declare their living arrangements to the Inland Revenue," said the report. The Inland Revenue was unlikely to devote a significant amount of money to collecting relatively small sums from a very small group of people.

In a coded criticism of Mr Brown, they concluded: "It will be for the House itself to decide whether the disadvantages and complexities of taxing child benefit would be outweighed by the advantages to all families if there were significant future increases in the level of child benefit."

Iain Duncan Smith, the Tory spokesman on Social Security, said the report showed that Mr Brown's plan was "increasingly untenable". He warned that the proposal would be "anti-marriage" as it would penalise families in which one parent stayed at home to look after children and relatives.